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Proposed Rulemaking on FLSA White Collar Exemptions

By Teeka Harrison and Charles O. Thompson

On June 30, 2015, the United States Department of Labor issued proposed rules revamping the Fair Labor Standards Act “white collar” exemptions.  The “white collar” exemptions include the executive, administrative, professional, outside sales, and computer employee exemptions from the FLSA requirement that all employees be paid overtime wages for time worked over forty hours per week.  More than doubling the white collar exemptions’ minimum salary requirement from $455 per week ($23,660 per year) to likely at least $970 per week ($50,440 per year), will, according to the DOL, make an estimated 4.6 million workers (at minimum) ineligible for the exemption and, in turn, eligible for overtime wages. 

Currently, the “white collar” exemptions apply to employees who are compensated on a salary basis at a rate of not less than $455 per week ($23,660 per year) and who meet certain job duty requirements.  The “white collar” exemption for highly compensated employees applies when employees are compensated not less than $100,000 per year (including at least $455 per week paid on a salary or fee basis) and customarily and regularly perform any one or more of the exempt duties or responsibilities of an executive, administrative or professional employee.  The DOL’s proposed rules will more than double the minimum salary amount requirement.

In its Notice of Proposed Rulemaking released today, the DOL proposes, among other things:

  • Increasing the minimum salary-basis requirement for most of the “white collar” exemptions from $455 per week ($23,660 per year) to likely at least $970 per week ($50,440 per year), which is the 40th percentile of weekly earnings projected for the first quarter of 2016, based on computations by the Bureau of Labor Statistics;
  • Automatic annual adjustments to the minimum salary requirement using one of two methods and the most recent data published by BLS;
  • Increasing the minimum annual compensation requirement for the highly compensated employee “white collar” exemption from $100,000 annually and at least $455 per week to at least $122,148 annually and likely at least $970 per week, which is the 90th percentile of weekly earnings in 2013 as computed by BLS (the proposed rule does not provide projected dollar amounts for the highly compensated employee exemption in 2016); and
  • Automatic annual adjustments to the minimum salary requirement for the highly compensation using one of two methods and the most recent data published by BLS.

The proposal to automatically update the minimum requirements every year would require employees to reevaluate the compensation of their exempt employees annually.  However, increases in the minimum salary requirement do not impact workers who do not have to comply with the salary level test, including outside sales workers, teachers, academic administrative personnel, physicians, lawyers and judges.

Employers should also be aware of potential, future changes to the job duties components of the “white collar” exemptions, as the proposed rulemaking invites comments on whether any such changes should be made in light of the proposed increases to minimum salary requirements. 

Given the list of issues on which the DOL seeks comment, the DOL may change the duties requirements overall (for example, by re-instituting a long and short duties test), set a minimum threshold of time that employees must spend performing exempt work (as some state laws already do), and/or modify the concurrent duties doctrine.  Any such changes may require re- evaluation, and possibly re-design, of work forces.  While the rulemaking is only “proposed” at this time, the question for employers should not be “if” they need to comply, but should be “by when”?  Employers should start getting ready to reevaluate the compensation of all of their currently exempt employees.  Employers will have to choose whether to increase salaries to meet the new tests, or re-classify employees as non- exempt and potentially pay overtime to employees working over forty hours per week.

If you have questions on how your company should prepare for the “when” the proposed regulations take effect or if you are interested in submitting public comment on these proposed regulations, please contact us.